After a record-setting quarter for the disaster bond market in Q2 2021, the market is on record-breaking tempo and issuance is anticipated to proceed to be supported by capital inflows and likewise an expectation that extra capital shall be reallocated to cat bonds from different areas of insurance-linked securities (ILS), in keeping with Aon Securities.
Buyers have been favouring the extra liquid, clear and sometimes predictable nature of the disaster bond construction over different areas of ILS fund investments like collateralized reinsurance and retrocession, over the past 12 months.
This reallocation of ILS investor capital was pushed by some sudden losses and uncertainty surrounding non-public ILS and collateralized reinsurance, which has helped a few of the bigger cat bond funds to develop considerably over current quarters.
Whereas this reallocation of ILS investor priorities and urge for food has additionally helped to assist the sturdy issuance seen within the cat bond market, as new sponsors turned to cat bonds as a danger switch software.
Aon Securities, the capital markets and ILS centered unit of the insurance coverage and reinsurance dealer, experiences that Q2 2021 was record-setting on quite a few fronts.
Whereas there have been $4.5 billion of scheduled maturities to reinvest, Aon Securities notes that market momentum far exceeded the capital redeployment, ushering in a sturdy quarter for each buyers and sponsors.
“Buyers continued to deal with the diversifying nature and liquidity advantages of cat bonds, main many ILS Funds, European UCITS Funds and World Asset Managers to be very profitable of their capital elevating efforts,” Aon Securities defined in its newest report.
Including that, “The freshly raised capital helped to assist the market which finds itself at a record-breaking tempo.”
The reallocation of capital to disaster bonds is now anticipated to persist and supply a further driver for issuance going forwards.
“We anticipate extra capital to be reallocated from different areas of ILS into the cat bond house as buyers proceed to emphasise liquidity and a decreased danger tolerance, additional constructing on the energy witnessed within the first two quarters,” Aon Securities famous.
Giant institutional buyers, akin to pension funds, have typically cited a need to see extra disaster bond alternatives up to now.
It now appears that this urge for food stands a greater probability of being glad, as capital looking for to be deployed into the cat bond phase of the ILS market is probably going to assist hold pricing enticing for sponsors, whereas supporting the issuance volumes and resultant allocation alternatives that buyers want to see.